In times of trouble, investors often rush for gold. At least that’s how it used to be, but these days, gold is seen by many as…well as a metal for making jewellery
It hit an all time high in January 1980, when it was going for $873 an ounce, since then the movements in the price of gold seem no more than incidental. And its price has languished at half that peak level for most of the 25 years since, falling just $250 in the months leading up to the disaster of September 11 2001.
Yesterday however, gold was back in the news after it hit an 18 year high, and this morning broke through the psychological barrier of $500 an ounce.
But what does this mean? Does it mean something sinister - is gold still a safe refuge - meaning investors don’t feel safe? Or is its rise down to more mundane factors?
Some say gold has been pushed high by Arab oil states simply in need for somewhere to put their profits. Others say the rise in gold is due to the developing economies, new as they are to the world of high finance, opting for a traditional home for their reserves.
But there is a counter view. Earlier this month (4 November) we referred to a report from HC Wainwright and Co for the World Gold Council. This suggested that actually the price of gold, and other precious metals such as silver and platinum, are good indicators of further inflation. For some time some analysts have argued that these days gold is a better barometer for inflation. The reverse argument to this is that actually, in the long term, oil at a high price is deflationary, as it takes money out of consumers’ pockets. Whereas, goes the argument, gold provides a much purer measure.
Only time will tell. Maybe gold north of £500 spells doom ahead. Maybe, the recent gold boom is no more than a bubble, perpetuated by investors jumping in because they see the price has been going up, and want some of the action. In which case, the boom in the yellow stuff could be no more than the latest example of… ‘fools gold.’
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